Turkish consumers dazed by another alcohol tax increase

ISTANBUL - Daily News with wires | 10/29/2010 12:00:00 AM |

The latest tax hikes in the aniseed beverage market, in which Turkey is an important player with rakı, make the country the ‘price champion.’ With the second rise in the special consumption tax in less than a year, taxes on rakı now surpass the ‘underlying price’ of the product. Sector representatives worry that unregistered sales will surge

The recent hike in the special consumption tax, or ÖTV, for alcoholic beverages has made Turkey the “world price champion” in the aniseed spirits market, according to Hürriyet newspaper.

Speaking on Thursday, Finance Minister Mehmet Şimşek said the ÖTV hike would mean an overall price increase of between 4 and 12.5 percent for alcoholic beverages.

The government’s decision, which triggered reactions, especially from the tourism industry and the political opposition, corresponds to a 30 percent ÖTV rise per liter in high-alcohol drinks, such as rakı, vodka and gin.

“Based on this rise, a consumer will have to pay nearly 35 liras (17.6 euros) for a 70cc bottle of rakı,” Hürriyet reported Friday. “In Europe, Greek ouzo is sold for between 5-8 euros, the French pastis is sold for between 11-14 euros and arak of Egypt is sold for 10 euros.”

Rakı is Turkey’s national drink and is sold in 55 countries. With the tax hike, Turkey will rank among the top five most expensive markets for rakı, according to Hürriyet. In Norway, Finland, Sweden and Canada, a 70cc bottle of rakı is sold for between 15 and 18 euros, Hürriyet said. The cheapest rakı is sold in neighboring Iraq, where a 70cc bottle goes for 7 euros. In Syria, the price is 8 euros. “Even in some European countries, a 70cc bottle could be sold for 10 euros,” Hürriyet reported.

The ÖTV per liter of rakı has been increased to 51.5 liras from 39.6 liras. The hike in gin and vodka has been from 44 liras to 57.2 liras. In fresh grape wine, the rise is from 1.95 liras to 2.44 liras, while the ÖTV on beer has increased from 0.35 lira to 0.44 lira.

[HH] Hopes of the sector dashed

Galip Yorgancıoğlu, president of the Traditional Alcoholic Beverage Producers Association, or GİSDER, said they would have to pass the hike onto consumer prices. “We had seen a surprise rise in ÖTV for alcoholic beverages in December 2009. The sector has not fully recovered yet from the negative effects of that rise. Tax collected from the sector was expected to be more than 2.13 billion liras in the first quarter of the year. Instead, it was 2.15 billion liras,” Yorgancıoğlu said. “Thus, the sector was hoping there would be no new tax hike.”

Speaking to Radikal, Sibel Kutman, member of the board at Doluca Wines, said she is concerned about a surge in unregistered sales. “As our sales will plummet, the collected tax will remain at the same levels,” she said.

Recalling Turkey’s global position in beverage prices, Yorgancıoğlu said countries such as Sweden, Norway and Denmark also extract high taxes from alcoholic beverages, but per capita income in those economies is nearly 40,000 euros. “Compared in a purchasing power sense, Turkey is the undisputed champion in taxing alcohol,” he said.

[HH] Handing over the economy to China

The tax hikes also triggered a harsh reaction from the main opposition party. In a press statement, Umut Oran, deputy president of the Republican People’s Party, claimed the government has “handed over the economy to China, while it is saving the national budget through taxing alcohol.”

The Justice and Development Party, or AKP, government is keeping the Turkish Lira overvalued against inflation, a policy that has resulted in “Chinese goods invading Turkey,” Oran said. He noted that imports from China surged 40 percent in September, surpassing $1.6 billion. “While the U.S. Senate enacts laws that put quotas on Chinese imports, Turkey is opening its doors wide to cheap Chinese goods,” he said.

Oran emphasized that Chinese goods have been pressuring the inflation rate, as admitted by the Central Bank, too. “But the government does not care about the negative effects of this policy on employment or production,” he said. “Low-priced imports are bankrupting small companies and destroying agriculture. In September, exports rose 5.5 percent on a monthly basis, while imports rose 25.3 percent to $15.65 billion.”

Oran said the government aims to keep inflation under check until the 2011 general elections, while also financing “part of the AKP election spending” from taxes on imports. “It has also increased the taxes on alcoholic beverages,” he said in the statement. “Thus, it is giving its [Islamist] base the message that it has not changed while saving the budget by taxing alcohol.”